HONG KONG, July 30 Reuters Japanese banks have attracted larger foreign investment flows than other sectors, as investors see them as top beneficiaries of potential monetary tightening.

Analysts said Japan39;s emergence from decades of deflation and higher rates will mean better earnings for banks, supporting their stock prices.

WHY IT39;S IMPORTANT

The Bank of Japan ends a twoday policy meeting on Wednesday and could raise interest rates and taper its purchases of bonds, following its ending of negative interest rates in March.

As it prepares to unwind a decade of monetary stimulus, investors who have witnessed the Nikkei stock index rally 20 in the past year are trying to pick winners.

BY THE NUMBERS

Banks and automobiles are two sectors with net foreign investment inflows so far this year.

Banks lured an estimated 472 billion yen 3.1 billion of net stock purchases in the year to July 25, more than double the flows into the automobiles and components sector, according to J.P. Morgan quantitative strategy team.

CONTEXT

Japan39;s three biggest banks forecast record profits in the coming year, thanks to better interest margins and growing funding demand, after being squeezed by negative rates for years.

Shares of Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and Mizuho Financial Group have surged 53, 39 and 36 yeartodate, respectively.

Overseas investors have also been buying more domesticoriented sectors such as services and pharmaceuticals,…